The financial news today seemed to focus on billionaire investor David Tepper who, like Fed Chairman Jerome Powell a week ago, was dishing hawkish rhetoric on the economy as we move into the holidays. On the heels of yesterday's sharp surge in the broad stock market (based on upbeat economic data), Mr. Tepper publicly stated today that he was "leaning short" on stocks based on his expectation that the Fed and other central banks will continue tightening into 2023. It appears that his "humbug" comments may have thrown another wet blanket on a possible second attempt at a "Santa Claus" rally. The DOW was down about 600 points by early afternoon, but closed the day with a 350 point loss. The NASDAQ lost 233 points by the closing bell. Christmas is only one trading day away; however, we still have a little over a week until New Year's Day. If investors shrug off Tepper's comments over the next few days, holiday optimism could reassert itself, and we might still see a rally into the new year.
"Santa Claus" rally aside, our technical and cycle analysis had predicted the major sub-cycle correction in the broad stock market that we have seen this month. Yesterday's equity surge lifted only the DOW above its 45-day moving average (the S&P 500 and NASDAQ remained below their 45-day moving averages), and today it closed back below. It looks like this correction could be headed lower. As I stated in Tuesday's blog, I would like to see the DOW get closer to 32,000 in this sub-cycle correction. That may still happen. If we get that with a bullish divergence signal early next week, it could be a good short-term buying opportunity for a sharp rally into the new year. But note that we don't expect that next rally to exceed the all-time highs in ALL THREE indices (maybe just the DOW), and we still expect this market to resume its longer-term correction down shortly after this next rally (if we get it). We remain on the sidelines of the broad stock market.
Gold and silver prices dropped sharply today and may be headed closer to our target prices of $1720 - $ 1750 in gold and $22 in silver. We remain on the sidelines of both metals for now.
In Tuesday's blog on crude oil I wrote:
"We remain in a reversal zone specifically for crude through Friday. I would like to see prices drop below $70 by then for a possible bottom to buy. If prices rally instead, we might see a top in this reversal zone and a subsequent correction back down. If prices really take off now and rally past Friday into next week, it could mean that the low of $70.08 on Dec. 9 was the end of the old (Aug. 16) medium-term cycle and the start of a new one."
Well, tomorrow is Friday and prices are rising up to a strong resistance line at $80 (Feb. contract chart). A top and reversal back down could be imminent. Again, my preference here would be to see a reversal and prices move below $70 over the next few weeks. But if crude "breaks out" above $80 and can exceed the $83.27 high of Dec. 1, we will have to consider the possibility that a new medium-term cycle cycle started with that $70.31 low on Dec. 9. That could be very bullish because it would also be the start of a longer-term 3 year cycle.
For now, let's remain on the sidelines of this market.